The pound hovered around $1.33, its weakest level since May 15, as renewed hostilities in the Middle East heightened fears of a protracted conflict involving Iran. The escalation pushed oil prices higher, intensifying inflation concerns and weighing on the UK’s growth outlook.
Brent crude jumped more than 4% after Iran and Israel exchanged missile strikes, despite President Trump urging both sides to halt hostilities and engage in peace talks. The shift in geopolitical risk reshaped market expectations for monetary policy, with traders now fully pricing in two Bank of England rate hikes this year.
Yet the Bank’s Monetary Policy Committee sounded a more cautious note. Dovish MPC member Alan Taylor said current interest rates are “quite restrictive” and argued there was no need for further increases to counter inflationary pressures linked to the Iran conflict.
At the same time, REC/KPMG survey data signaled a cooling labour market: permanent staff placements in May recorded their sharpest decline in 10 months, with businesses citing weak confidence and rising costs. The figures point to a softening jobs backdrop ahead of the BOE’s next policy meeting.
